A health emergency dismissed at first as a fleeting risk to the U.S.
economy has turned into a full-on test of whether a decade of planning,
regulation, research and soul-searching has left the financial system
resilient to a major shock and its central bank able to mount a rescue.
Though equity markets continued sinking on Monday, the success of the Federal Reserve's emergency response will play out in coming weeks across financial markets the central bank has pledged to keep functioning, across corporations that may be hard pressed to make payments on a record load of debt, and in corner shops and households that turn to local banks for help as earnings and wages dry up.
Fed chair Jerome Powell rolled out programs on Sunday he said will help on all fronts, but the best hope now is for a short sharp dip in economic growth as the virus is contained, followed by a fast rebound as the country reopens, said analysts and economists who follow the Fed closely.
The longer it lasts, the more likely it leads to mass layoffs and problems beyond those the Fed has anticipated, for example, in the regular "stress tests" major banks must pass.
"This is a sharp, deep real-side shock that started abroad and propagated in the supply side, followed by a significant demand shock and a marked tightening of financial conditions," a triple calamity that the Fed and others now feel will cause the economy to contract in the April to June period, said Nathan Sheets, chief economist at PGIM Fixed Income and a former Fed and U.S. Treasury official.
Coronavirus: First test of a U.S. financial system 10 years in repair | The Mighty 790 KFGO | KFGO
Though equity markets continued sinking on Monday, the success of the Federal Reserve's emergency response will play out in coming weeks across financial markets the central bank has pledged to keep functioning, across corporations that may be hard pressed to make payments on a record load of debt, and in corner shops and households that turn to local banks for help as earnings and wages dry up.
Fed chair Jerome Powell rolled out programs on Sunday he said will help on all fronts, but the best hope now is for a short sharp dip in economic growth as the virus is contained, followed by a fast rebound as the country reopens, said analysts and economists who follow the Fed closely.
The longer it lasts, the more likely it leads to mass layoffs and problems beyond those the Fed has anticipated, for example, in the regular "stress tests" major banks must pass.
"This is a sharp, deep real-side shock that started abroad and propagated in the supply side, followed by a significant demand shock and a marked tightening of financial conditions," a triple calamity that the Fed and others now feel will cause the economy to contract in the April to June period, said Nathan Sheets, chief economist at PGIM Fixed Income and a former Fed and U.S. Treasury official.
Coronavirus: First test of a U.S. financial system 10 years in repair | The Mighty 790 KFGO | KFGO
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